Q4 2023 Franklin Resources Inc Earnings Call

Yeah.

Yes.

Welcome to Franklin.

Earnings Conference call for the quarter ended September 30th.

Hello, My name is Julie.

Operator today.

As a reminder, this conference is being recorded and at this time all participants are in a listen only mode. I would now like to turn the conference over to your host head of Investor Relations for Franklin.

You may begin.

Good morning, and thank you for joining us today to discuss our quarterly and fiscal year.

Please note that the financial results to be presented in this commentary are preliminary.

<unk> made on this conference call regarding Franklin Resources, Inc, which are not historical facts are forward looking statements.

The meeting of the private Securities Litigation Reform Act of 1995.

These forward looking statements involve a number of known and unknown risk uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward looking statements.

These and other risks uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the risk factors and the MD&A sections of Franklin's most recent Form 10-K 10-Q filings.

I'll turn the call over to Jenny Johnson, our President and Chief Executive Officer. Thank you Celine Hello, everyone and thank you for joining us today to discuss Franklin Templeton's fourth quarter and fiscal year 2023 results as usual, Matt Nicholls, our CFO and COO and Adam Specter, our head of global distribution.

Joining me on the call.

Over the past several years, we've made great strides in transforming our business all in an effort to meet the needs of our clients and shareholders around the globe no matter the market environment. We've done this by creating a diversified company that offers a broad range of investment expertise and capabilities across asset classes.

As investment vehicles and geographies.

Today, we're able to offer our partners and investors the ability to fulfill their comprehensive investment needs across public and private markets and in the vehicle of their choice as one firm with specialist investment managers operating around the globe. In addition, we have made important investments in <unk>.

You added services, including technology digital wealth and customization in order to be on the forefront of innovation in areas increasingly important to our clients as we look back over our fiscal year challenging global financial markets and geopolitical uncertainty.

Weighed heavily on investor sentiment.

The so-called magnificent seven seven large U S Tech companies have primarily driven all of the gains in global stocks this year and in our fourth quarter, we saw heightened volatility lead to increasing pressures and declines across equity and fixed income markets.

We believe markets like the one we're in reinforced the value of active management with a long term investment horizon.

Often in these times of uncertainty, where the best opportunities to capture value are identified in this complex and volatile market environment. It's no surprise that theres, a tremendous amount of cash sitting in bank accounts and money market funds, capturing what are the most attractive short term yields and more than 15 years.

Global money market assets stood at seven four trillion as of September 30th the highest asset level since Morningstar started collecting the data in 2007.

We have been actively engaging with our clients to understand their needs and address their strategic goals.

Clients continue to look for additional access to private markets alternative credit in particular and as yields have become more attractive clients have had a renewed interest in fixed income we continue to provide insights and thought leadership to help them navigate the latest conditions, including drawing upon the resource.

It is of our various specialist investment managers.

The Franklin Templeton Institute.

Against this backdrop, we continue to manage our global business with a focus on areas of organic growth.

<unk> discipline and strategic transactions as such this year. We are pleased with the progress made executing on our long term corporate priorities by expanding our investment capabilities across vehicles and deepening our presence in key markets and channels for the fiscal year, notwithstanding 20% lower inflows.

Long term net outflows improved 23% from the prior year long term net flows were positive in several key areas, including alternatives.

Multi asset Etfs canvas and the high net worth channel. In addition, our Asia Pacific region generated positive long term net flows for the fiscal year, our EMEA region turned positive in the second half of fiscal 2023, and our non U S regions posted positive net flows in the fourth.

Quarter, one of our strategic priorities has been to increase our scale in key segments of the industry, reflecting long term client demand in this pursuit to offer more choice to more clients. We closed the acquisition of both sentra, a leading European credit manager doubling our alternative credit.

AUM.

Firm wide alternative AUM increased by over 13% to 255 billion from the prior year, making Franklin Templeton one of the largest managers of alternative asset. That's alternative AUM represents approximately 19% of our long term AUM and approximately 25%.

Of adjusted revenues, excluding performance fees in fiscal 2023 alternative asset management fee revenues increased 36% year over year. Furthermore, we were pleased to announce the pending acquisition of Putnam investments with 136 billion of AUM and our real.

<unk> chip with power Corporation, and great West Lifeco strengthening our presence in the retirement and insurance segments.

The transaction will enable us to further bolster our presence in these key market segments to better serve all our clients and remains on track to close in the fourth quarter of calendar 2023 industry wide, we continue to see consolidation of asset management relationships.

In this context, there our increased expectations for value added services and we believe we are well positioned as a strategic partner due to the breadth and depth of our investment capabilities technology content and capital resources as we look ahead in 2024 and beyond.

And with better clarity on interest rates and markets in general there will be an increased likelihood of investors moving money from the sidelines. We believe we are well positioned to capture money in motion as clients benefit from the expertise of each of our specialist investment managers, particularly in.

Areas, where there is strong client demand such as alternatives income fixed income solutions and custom indexing.

Turning now to our specific numbers for the fiscal year, starting first with assets under management and flows ending AUM was 137 trillion an increase of 6% from the prior year, primarily due to market appreciation and the acquisition of all cetera investment performance continues to be strong.

<unk> and resulted in 61%, 48%, 47% and 61% of our strategy composite.

Outperforming their respective benchmarks on a 135 and 10 year basis.

Impaired to the prior year.

AUM outperforming benchmarks stayed the same in the three year period and declined in the five and 10 year periods.

One year performance improved significantly due to several equity strategies, including non U S strategies and select U S. Taxable fixed income composites long term net outflows were 21 billion and improved by 23% from net outflows of 28 billion in the prior year.

Reinvested distributions were 21 billion compared to $32 billion in the prior year.

Long term net flows while challenged for the year continued to benefit from a diversified mix of assets and strong presence in key areas.

The assets saw a 66% increase in net flows from the prior year and were positive for all four quarters, including nearly 8 billion driven by Franklin income Fund Franklin Templeton investment solutions, and canvas or custom indexing solution platform in fact, our flagship Frank.

<unk> income fund celebrated its 75th anniversary in August the strategy follows a flexible value oriented investment philosophy seeking income and long term capital appreciation by investing in dividend paying stocks bonds and convertible securities. The fund has successfully deliver.

<unk> under opted dividends across all market cycles ever since its launch in 1948. It's also a great example of how we're given investors greater choice in how they access the strategy, including through Sma's sub advised strategies and then actively.

<unk> ETF vehicle around the globe for the fiscal year alternative net inflows were approximately $6 billion driven by growth in private market strategies, which were partially offset by outflows in liquid alternative strategies.

Benefit Street partners, Clarion partners, and Lexington partners together generated net inflows of nearly $11 billion. We continue to make strides in alternative assets unlocking new opportunities for investors in our firm retail and high net worth investors remain under allocated in alternatives.

Relative to institutions client interest was strong for alternative strategies on wealth management platforms under the alternatives by Franklin Templeton brand in the U S, which was launched earlier. This year. For example, we anticipate over 20% of the total capital raised and our current <unk>.

Secondary private equity fund to come from the wealth management channel. We continue to focus on client education initiatives through our alternative focused podcasts and webinars partnering with Franklin Templeton Academy fixed income net outflows decreased by approximately 50% to $16 billion this fiscal year.

<unk> with net flows significantly improving starting in the second quarter of the fiscal year and.

In a year when all eyes are on the bond markets and interest rates, we continue to benefit from having a broad range of fixed income strategies with non correlated investment philosophies.

Brandywine Global saw positive net flows for the year.

Franklin Templeton fixed income saw positive net flows in the second half.

And western asset had positive net flows in its core and muni products for the year fixed.

Fixed income strategies also saw net flows in Etfs and starting in the second half of the year in Sma's with the addition of Putnam will further strengthen our fixed income offering, particularly with ultrashort stable value and longer duration strategies with strong long term investment.

Performance equity net outflows were nearly $19 billion the risk off environment continued to impact investor sentiment on select equity growth strategies, which were partially offset by net inflows into large cap core international smart beta quantitative and emerging markets.

Unknown Executive: Welcome to Franklin Resources earnings conference call for the quarter ended September 30th, 2023.

Strategies, we believe that emerging markets equities could be a potential bright spot in equities as investors look across broad markets for opportunities.

Julie: Hello, my name is Julie and I will be your call or perter today. As a reminder, this conference is being recorded and at this time all participants are in a listen only mode.

Turning to Etfs since launching our ETF business in 2016, we have provided our clients with a broad range of investment strategies and have achieved significant growth milestones.

Selene Oh: I will now like to turn the conference over to your host, Selene Oh, head of investor relations for Franklin Resources. You may begin.

Unknown Executive: Good morning and thank you for joining us today to discuss our quarterly and fiscal year results. Please note that the financial results to be presented in this commentary are preliminary statements made on this conference call regarding Franklin Resources Inc which are not historical facts are forward looking statements within the meeting of the private securities litigation reform act of 1995. These forward looking statements involve a number of known and unknown risk uncertainties and other important factors that could cause actual results you differ materially for many future results expressed or implied by such forward looking statements.

Pts generated net inflows of nearly $4 billion in the fiscal year, representing four consecutive quarters with net flows of approximately 1 billion in AUM ended the quarter at over $16 billion.

We continue to launch new and innovative Etfs based on client interest during the fourth quarter, both western asset and Brandywine Global launched active fixed income Etfs and we expect to see strong client interest in both strategies.

We are a leading franchise in SMA with 113 billion in AUM, an increase of 13% from the prior year, we saw momentum in our SMA platform with $1 3 billion of long term net flows in the second half of the fiscal year. This year, we continued to expand our SMA <unk>.

Unknown Executive: These and other risk uncertainties and other important factors are described in more detail in Franklin's recent filings with the securities and exchange commission, including in the risk factors and the MDNA sections of Franklin's most recent form 10k and 10k filing.

Jenny Johnson: With that, I'll turn the call over to Jenny Johnson, our president and chief executive officer. Thank you Selene. Hello everyone and thank you for joining us today to discuss Franklin Templeton's fourth quarter and fiscal year 2023 results. As usual, Matt Nichols or CFO and COO and Adam Specter, our head of global distribution are joining me on the call. For the past several years, we've made great strides in transforming our business all in an effort to meet the needs of our clients and shareholders around the globe no matter the market environment.

Abilities with launches focused on customization, such as tax managed overlay and SMA products of key flagship strategies, including the Franklin income fund.

Through new technologies, we're continuing to enable personalized portfolio of solutions that seek to improve bespoke outcomes for investors are good examples campus, which has achieved net inflows each quarter since the platform launch in September 2019, and AUM has more than doubled to $4 8 billion.

Jenny Johnson: We've done this by creating a diversified company that offers a broad range of investment expertise and capabilities across asset classes, investment vehicles and geographies. Today, we're able to offer our partners and investors the ability to fulfill their comprehensive investment needs across public and private markets and in the vehicle of their choice as one firm with specialist investment managers operating around the globe. In addition, we have made important investments in value added services, including technology, digital wealth and customization in order to be on the forefront of innovation in areas increasingly important to our clients.

The acquisition closed this year canvas generated net inflows of approximately $1 5 billion and had 20 new partnerships. In addition, it continues to have a robust pipeline private wealth management AUM ended the quarter at 34 billion with fiduciary Trust international generating its 12th consecutive.

Quarter of long term net inflows fiduciary trust provides personalized solutions to high net worth individuals and multifamily offices with an average client relationship of 16 years. It is a growing client base and a platform well positioned for long term growth.

Since 2010, Franklin Templeton has been the investment manager and sole administrator of fund dual in July found those largest holding hydro electronica.

Jenny Johnson: As we look back over our fiscal year, challenging global financial markets and geopolitical uncertainty weighed heavily on investor sentiment. The so-called magnificent seven, seven large US tech companies have primarily driven all of the gains in global stocks this year. And in our fourth quarter, we saw heightened volatility lead to increasing pressures and declines across equity and fixed income markets. We believe markets like the one we're in reinforce the value of active management with a long-term investment horizon.

Romania is leading energy producer broke a record as being Romania is the largest initial public offering on the Bucharest stock exchange. The listing reflects our ability to provide partnerships with public and private institutions in emerging markets to deliver long term value.

For all stakeholders and our enduring commitment to developing the country's local capital market promoting corporate governance and transparency.

Can you forward to 2024.

Jenny Johnson: It's often in these times of uncertainty where the best opportunities to capture value are identified. In this complex and volatile market environment, it's no surprise that there's a tremendous amount of cash sitting in bank accounts and in money market funds, capturing one of the most attractive short-term yields in more than 15 years. Global Money Market Assets stood at 7.4 trillion as of September 30, the highest asset level since Morningstar started collecting the data in 2007.

We will continue to further expand our business and invest in key areas of growth that extend our ability to offer more choice to more clients in more places, including alternative asset management insurance and retirement channels customization and solutions for clients technology related distribution and private wealth.

Management, specifically fiduciary Trust International we are proud of the work that we've done over the past several years to further grow and diversify our business. It makes us a more resilient organization over the long run and reflects our focus on positioning Franklin Templeton has a premier partner finally, I'd like to.

Jenny Johnson: We have been actively engaging with our clients to understand their needs and address their strategic goals. Many clients continue to look for additional access to private markets, alternative credit in particular. And as yields have become more attractive, clients have had a renewed interest in fixed income. We continue to provide insights and thought leadership to help them navigate the latest conditions, including drawing upon the resources of our various specialist investment managers and the Franklin Templeton Institute.

Thank our dedicated employees around the world for all their efforts in this past year to grow our business by always putting our clients first and are continuously evolving industry now I'd like to turn the call over to our CFO and COO, Matt Nicholls, who will review our financial results from the fiscal quarter and year as well as provide an update on the.

Putnam acquisition, Matt Thanks, Jenny fourth quarter, ending AUM was 1.3 dollars seven trillion dollars, reflecting a decline of 4% from the prior quarter and average AUM was 1.42 trillion dollars flat from the prior quarter adjusted operating revenues increased by 1% to $1 $6 billion from the prior quarter.

Jenny Johnson: Against this backdrop, we continue to manage our global business with a focus on areas of organic growth, expense discipline, and strategic transactions. As such this year, we're pleased with the progress made executing on our long-term corporate priorities by expanding our investment capabilities across vehicles and deepening our presence in key markets and channels. For the fiscal year, notwithstanding 20% lower inflows, long-term net outflows improved 23% from the prior year. Long-term net flows were positive in several key areas, including alternatives, multi-asset, ETFs, Canvas, and the high-network channel.

And included adjusted performance fees of $98 million compared to $116 million in the prior quarter. This quarter's investment management fees benefited from $36 million in connection with Fundable and were partially offset by lower catch up fees of $17 million in secondary private equity. This course adjusted effective.

Fee rate, which excludes performance fees was 42 basis points, an increase of one basis point due to transaction related management fees earned from Foldable.

Jenny Johnson: In addition, our Asia-Pacific region, generated positive long-term net flows for the fiscal year, our AMIA region turned positive in the second half of fiscal 2023, and our non-US regions posted positive net flows in the fourth quarter. One of our strategic priorities has been to increase our scale in key segments of the industry reflecting long-term client demand. In this pursuit to offer more choice to more clients, we close the acquisition of El Centra, leading European credit manager doubling our alternative credit at UM.

Adjusted operating income increased 7% from the prior quarter to $512 million.

And adjusted operating margin increased to 32, 4% from 30.5% the.

The increase from the prior quarter is primarily due to higher investment management fees. The aforementioned management fees earned from fondue, and lower compensation and benefits expense.

Partially offset by lower performance fees, the specific operating income from fondue and secondary private equity catch up fees was $35 million for the quarter fourth quarter adjusted net income and adjusted diluted earnings per share increased by 31% and 33% from the prior quarter.

Jenny Johnson: Firmwide, alternative AUM increased by over 13% to 255 billion from the prior year, making Franklin Templeton one of the largest managers of alternative assets. Alternative AUM represents approximately 19% of our long-term AUM and approximately 25% of adjusted revenues, excluding performance fees in fiscal 2023. Alternative assets management fee revenues increase 36% year-over-year. Furthermore, we were pleased to announce the pending acquisition of Putnam investments with 136 billion of AUM and our relationship with power corporation and Great West Life Co, strengthening our presence in the retirement and insurance segments.

$427 million and H four cents, respectively. The increase in adjusted net income and adjusted diluted EPS is primarily due to higher other income higher adjusted operating income for the reasons mentioned and lower taxes adjusted EPS increased by five cents due to phone bill and secondary.

Private equity catch up fees in the quarter turning to fiscal year 2023 results.

Jenny Johnson: The transaction will enable us to further bolster our presence in these key market segments to better serve all our clients and remains on track to close in the fourth quarter of calendar 2023. Industry-wide, we continue to see consolidation of asset management relationships. In this context, there are increased expectations for value-added services and we believe we are well positioned as a strategic partner due to the breadth and depth of our investment capabilities, technology, content, and capital resources.

Ending AUM increased by 6% from the prior year, while average AUM declined by 5% adjusted operating revenues of $6 1 billion decreased by 6% from the prior year and included an additional six months of Lexington, and 11 months without central adjusted performance fees of 383.

<unk> decreased from $515 million in the prior year, the adjusted effective fee rate, which excludes performance fees was 39 five basis points compared to $38 nine basis points in the prior year, primarily due to a full year of Lexington, and 11 months of a center while continuing to.

And long term growth initiatives. We also continued to strengthen the foundation of our business through disciplined expense management and operational efficiencies.

Jenny Johnson: As we look ahead in 2024 and beyond with better clarity on interest rates and markets in general, there will be an increased likelihood of investors moving money from the sidelines. We believe we are well positioned to capture money in motion as clients benefit from the expertise of each of our specialist investment managers, particularly in areas where there is strong client demand such as alternatives, income, fixed income solutions, and custom indexing.

Adjusted operating expenses were $4 3 billion, an increase of 3% from the prior year again, including a full year of Lexington, and 11 months without a central <unk>.

Excluding performance fee related compensation and the full year impact of Lexington in El Centro adjusted operating expenses were down slightly from the prior year.

This led to fiscal year adjusted operating income of $1 8 billion, a decrease of 22% from the prior year, primarily due to lower average AUM driven by market declines and to a lesser degree net outflows.

Jenny Johnson: Turning now to our specific numbers for the fiscal year, starting first with assets under management and flows, ending AUM was 1.37 trillion, an increase of 6% from the prior year, primarily due to market appreciation and the acquisition of Alcentra. Investment performance continues to be strong and resulted in 61% 48% 47% and 61% of our strategy composite AUM outperforming their respective benchmarks on a one three five and 10 year basis. Compared to the prior year, AUM outperforming benchmarks stayed the same in the three year period and declined in the five and 10 year periods.

Adjusted operating margin was 29, 9% compared to 35, 9% in the prior year compared to the prior year fiscal year. Adjusted net income declined 28% to $1 3 billion and adjusted diluted earnings per share was $2 60, a decline of 28% from a capital.

Expected after returning $870 million to shareholders through dividends and share repurchases and.

And funding the acquisition of our central and other acquisition related payments. We ended the year with $6 9 billion of cash and investments. We will continue to prioritize our dividend, which has increased every year since 1982.

Jenny Johnson: One year performance improved significantly due to several equity strategies including non U.S, strategies and select U.S, taxable fixed income composites. Long term net outflows were 21 billion and improved by 23% from net outflows of 28 billion in the prior year. Reinvested distributions were 21 billion compared to 32 billion in the prior year. Our long term net flows, while challenged for the year, continued to benefit from a diversified mix of assets and strong presence in key areas.

Purchase shares to hedge our employee share grants.

Where applicable review talk to the acquisitions to reach our objectives at an accelerated pace. In addition, as we began in the fourth quarter, we plan to Opportunistically repurchase shares above the employee related equity issuances during fiscal year 2024.

Turning to the Putnam transaction, which as Jenny mentioned remains on track to close in the fourth quarter of calendar 2023.

Amongst other factors the transaction is structured to maintain Franklin Templeton.

So flexibility and promote our continuing investments in the business.

Jenny Johnson: Multi assets saw a 66% increase in net flows from the prior year and were positive for all four quarters, including nearly 8 billion driven by Franklin income fund, Franklin Templeton Investment Solutions and Canvas, our custom indexing solution platform. In fact, our flagship Franklin income fund celebrated 75th anniversary in August. The strategy follows a flexible value-oriented investment philosophy seeking income and long term capital appreciation by investing in dividend paying stocks, bonds and convertible securities.

It also protects our strong financial position in the context of challenging market conditions.

Current market levels. The acquisition Department is expected at total run rate adjusted operating income of approximately $150 million. After the first year post closing.

Assistant with an approximate 30% operating margin inclusive of cost synergies.

And we are ahead of schedule in terms of when we are likely to realize operating income post close assuming this operating income contribution the transaction is expected to be modestly accretive to adjusted EPS by the end of the first quarter after closing.

Jenny Johnson: The fund has successfully delivered uninterrupted dividends across all market cycles ever since its launch in 1948. It's also a great example of how we're given investors greater choice and how they access the strategy, including through SMAs, sub-advised strategies and an in actively managed ETF vehicle around the globe. For the fiscal year, alternative net inflows were approximately 6 billion driven by growth in private market strategies, which were partially offset by outflows in liquid alternative strategies.

And now we would like to open the call up to your questions.

Thank you if you'd like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance during the call. Please press star zero on your telephone keypad.

Bad.

We ask that you limit yourself to one initial question and one follow up one moment. Please for your first question.

Your first question comes from Michael Cyprus from Morgan Stanley. Please go ahead.

Jenny Johnson: Benefit street partners, clarion partners and Lexington partners together generated net inflows of nearly 11 billion dollars. We continue to make strides in alternative assets, unlocking new opportunities for investors in our firm, retail and high net worth investors remain under allocated in alternatives relative to institutions. Inc. Client Interest were strong for alternative strategies on wealth management platforms under the alternatives by Franklin Templeton brand in the US, which was launched earlier this year.

Great. Thank you. Good morning, Thanks for taking the question maybe you could just start off on the private market space you guys continue to raise capital there maybe you could just.

Date us on some of the progress across some of the key flagship funds, which strategies you think might be entering the market as you look out over the next 12 months and just on the private wealth channel I think you mentioned, 20%.

Or what you're looking expecting to raise or maybe you can just talk about some of the traction that youre seeing in the private wealth channel in terms of fund placements at new products, you might be able to bring on the channel.

Jenny Johnson: For example, we anticipate over 20 percent of the total capital raise in our current secondary private equity fund to come from the wealth management channel. We continue to focus on client education initiatives through our alternative focus podcasts and webinars partnering with the Franklin Templeton Academy. Fixed income net outflows decreased by approximately 50 percent to 16 billion this fiscal year with net flows significantly improving starting in the second quarter of the fiscal year.

Great Adam Adam is going to take this one.

Alright. Thank you Danny we're seeing strength really across the board I would say the folks.

The place where.

We're seeing a lot of interesting Michael.

Others in the private debt area, there are particularly in the real estate related debt. We're seeing good growth we've had a good year.

In our CLO business, we're out with special situations in new BSP flagship fund that's all really good.

Centra is beginning to be integrated more into our distribution force, we're feeling really positive about that as well Lexington is continuing their fund raise for fund.

Jenny Johnson: In a year when all eyes were on the bond markets and interest rates, we continue to benefit from having a broad range of fixed income strategies with non-correlated investment philosophies. Brandywine Global saw positive net flows for the year. Franklin Templeton fixed income saw positive net flows in the second half. And Western asset had positive net flows in its core and muni products for the year. Fixed income strategies also saw net flows in ETFs and starting in the second half of the year in FMAs.

And we're beginning to do some other things there you mentioned, Michael the 20% raise.

That will come from wealth management for Lexington, we're starting to see greater traction for wealth management alternatives across the board. We spent the year really building out our capabilities for U S wealth management alternatives and we're now taking that model.

Using it in Europe in general one of the things we're seeing that's quite.

Jenny Johnson: With the addition of Putnam, we will further strengthen our fixed income offering, particularly with ultra short stable value and longer duration strategies with strong long term investment performance. Equity net outflows were nearly 19 billion. The risk off environment continued to impact investor sentiment on select equity growth strategies which were partially offset by net inflows into large cap core international smart beta quantitative and emerging market strategies. We believe that emerging markets equities could be a potential bright spot in equities as investors look across broad markets for opportunities.

Positive in wealth management is the fact that we're now getting on to calendars six months a year in advance and once you're in that flow. We think the fundraising really will continue.

That's the quick overview.

Great. Thank you and just a follow up question maybe for Matt.

I think in the release you mentioned the transfer agency functions globally have now been outsourced.

You did that in the U S. Now you took that around the world I think also you've outsource fund administration in the U S. So maybe you could just talk to what's next as you think about simplifying the business enhancing efficiencies what steps might be able to take over the next year or two how meaningful might they be and just curious any sort of benefits are lessons learned to takeaways that you could speak to on the.

Jenny Johnson: Turning to ETS, since launching our ETF business in 2016, we have provided our clients with a broad range of investment strategies and have achieved significant growth milestones. ETFs generated net inflows of nearly 4 billion in the fiscal year, representing four consecutive quarters with net flows of approximately 1 billion and AUM ended the quarter at over 16 billion. We continue to launch new and innovative ETFs based on client interest. During the fourth quarter, both Western asset and Brandywine Global launched active fixed income ETFs and we expect to see strong client interest in both strategies.

The transfer agency outsourcing.

Yes. So you mentioned three key things one is the steps we've taken to outsource funded ministration transfer agency and aspects of our technology.

What we've been working hard on over the last year also is what's next in terms of our investment management platform in terms of technology that includes both middle office back office functions and I'd say that we're pretty deep into it and you can expect more updates from us throughout 2024, well and I would just add.

Jenny Johnson: We are leading franchise in FMAs with 113 billion in AUM, an increase of 13 percent from the prior year. We saw momentum in our FMA platform with 1.3 billion of long-term net flows in the second half of the fiscal year. This year, we continue to expand our SMA capabilities with launches focused on customization such as tax managed overlay and SMA products of key flagship strategies, including the Franklin income fund. Through new technologies, we continue to enable personalized portfolio solutions that seek to improve bespoke outcomes for A good example is Canvas, which has achieved net inflows each quarter since the platform launched in September 2019, and AUM has more than doubled to 4.8 billion since the acquisition closed.

Mike as you know we've done a lot of acquisitions and.

I think what one of the reasons. They work well is we take our time on some of the integration and so theres opportunity, you'll obviously, we'll be integrating putnam into the.

Into our environment and even some of it Legg Mason.

Our.

We have an opportunity to integrate which we think will.

Simplify the environment, yes in terms of the financial impact Mike I would just caution you on that at this these things take time as Jenny mentioned there.

There won't be any additional change in 2020 for the step change in terms of the expense.

Because the expenses around the operation, but I think getting into 'twenty five 'twenty so longer term not only do we have the opportunity to be more efficient across the organization, bringing things closer together in an effective way, but also it's not choose to modernize to reduce capex to make sure that longer term, we're in a position where we can scale at lower expenses.

Jenny Johnson: This year, Canvas generated net inflows of approximately 1.5 billion and had 20 new partnerships. In addition, it continues to have a robust pipeline. Private wealth management AUM ended the quarter at $34 billion, with producer-a-trust international generating its 12th consecutive quarter of long-term net inflows. Producer-a-trust provides personalized solutions to high net worth individuals and multi-family offices with an average client relationship of 16 years. It is a growing client base and a platform well-positioned for long-term growth.

With the right partners.

Great. Thank you.

Okay.

Your next question comes from Craig Siegenthaler from Bank of America. Please go ahead.

Thanks, Good morning, everyone.

My question is on the SMA business and I think you said he asked one question, but maybe I could ask another one on the SMA within here.

What I'm looking for is more details around the components and the growth trajectory.

Jenny Johnson: Since 2010, Franklin Tubleton has been the investment manager and sole administrator of FONDULE in July FONDULE's largest holding hydroelectrica, Romania's leading energy producer broke a record as being Romania's largest initial public offering on the Bucharest stock exchange. The listing reflects our ability to provide partnerships with public and private institutions in emerging markets to deliver long-term value for all stakeholders and our enduring commitment to developing the country's local capital market, promoting corporate governance and transparency.

So now that the Franklin income fund, which is one of your flagships isn't the SMA Rahbar I'm just wondering are there other flagships.

Franklin and its affiliates that would make sense also launching into an SMA wrapper.

And then kind of my two parter was generating about $700 million.

Flows per quarter.

And the estimate Robert.

This is a level that could increase significantly from here.

Yeah. So I mean, you got to remember.

SMA is exist.

And the reason, they're taking out so much is that in the retail channel where the world went a fee based it is difficult for a financial adviser, whose client sees they're being charged every month for advice to buy and hold a mutual fund alright. So if you can deliver the same kind of product in an SMA with the holding.

Jenny Johnson: Looking forward to 2024, we will continue to further expand our business and invest in key areas of growth that extend our ability to offer more choice to more clients and more places, including alternative asset management, insurance and retirement channels, customization and solutions for clients, technology-related distribution and private wealth management, specifically FONDULE's trust international. We are proud of the work that we have done over the past several years to further grow and diversify our business. It makes us a more resilient organization over the long run and reflects our focus on positioning Franklin Templeton as a premier partner.

<unk>.

Basically on the statement.

It looks like the advisors being much more active on that and so.

We view ourselves as being vehicle agnostic to how we deliver what is our expertise which is our investment capability.

And so you take for example, the Franklin income fund.

The Franklin income fund now is got it we have an ETF version in SMA version and were seeing growth in both of those so any of our products.

Jenny Johnson: Finally, I'd like to thank our dedicated employees around the world for all their efforts in this past year to grow our business by always putting our clients first in a continuously evolving industry.

Can be delivered an estimate today, we have munis muni are actually have a good growth area in the SMA Muni ladders.

Matt Nichols: Now, I'd like to turn the call over to our CFO and COO, Matt Nichols, who will review our financial results from the fiscal quarter and year as well as provide an update on the partner acquisition. Matt? Thanks, Jenny. Fourth quarter ending AUM was $1.37 trillion, reflecting at the client of 4% from the prior quarter, an average AUM was $1.42 trillion flat from the prior quarter. Adjusted operating revenues increased by 1% to $1.6 billion from the prior quarter and included adjusted performance fees of 98 million compared to $116 million in the prior quarter.

And so.

The way, we're thinking about our business is.

I always say, it's like a three legged stool.

Product.

<unk> ability.

Global distribution and.

And vehicles.

And the vehicles can be mutual funds.

Commingled trusts Etfs SMA things like canvas direct indexing and we should be flexible about how we deliver those in whatever market.

Whatever market, we're operating in and I think that that nobody has won the breath of product capability that we have to the breadth of geographic distribution, both on the retail and institutional side and while we may have been late to things like passive Etfs we were.

Matt Nichols: This quarter's investment management fees benefited from $36 million in connection with fondle and were partially offset by lower catch-up fees of $17 million in secondary private equity. This quarter's adjusted effective fee rate, which excludes performance fees, was 40.2 basis points, an increase of one basis point due to the transaction-related management fees earned from fondle. Adjusted operating income increased 7% from the prior quarter to 512 million, and adjusted operating margin increased to 32.4% from 30.5%.

Early actually in the active ETF space and so being vehicles plastic is very important now the challenge is on SMA is that you have to get approval at the gatekeeper level and then you have to go out and train individual advisors. So it's a bit like alt and the complexity, but once you do that.

Then you just get consistent flows coming in so.

Matt Nichols: The increase from the prior quarter is primarily due to higher investment management fees. The aforementioned management fees earned from Fondore and lower compensation and benefits expense, partially offset by lower performance fees. The specific operating income from Fondore and secondary private equity catch-up fees was $35 million for the quarter. Fourth quarter adjusted net income and adjusted diluted earnings per share increased by 31% and 33% from the prior quarter to 427 million and 84 cents respectively.

The answer is basically we see any of our flagship funds is being able to be delivered through the SMA platform.

And I just might add that emerging markets is another area, where we're seeing significant SMA growth. In addition to the muni that Jenny answer and while a lot of the growth is in SMA, having a product available like the income fund and SMA and Etfs or mutual funds cross border funds being.

Vehicle agnostic really lets us take.

Broader access to different platforms.

Matt Nichols: The increase in adjusted net income and adjusted diluted EPS is primarily due to higher other income, higher adjusted operating income for the reasons mentioned and lower taxes. Adjusted EPS increased by 5 cents due to Fondore and secondary private equity catch-up fees in the quarter.

Thank you very much.

Your next question comes from Brennan Hawken from UBS. Please go ahead.

Good morning, Thanks for taking my questions.

Curious about the expectations for expense growth.

Matt Nichols: Turning to fiscal year 2023 results, ending AUM increased by 6% from the prior year while average AUM declined by 5%. Adjusted operating revenues of 6.1 billion decreased by 6% from the prior year and included an additional 6 months of Lexington and 11 months of Alcventra. Adjusted performance fees of 383 million decreased from 515 million in the prior year. The adjusted effective fee rate, which excludes performance fees, was 39.5 basis points compared to 38.9 basis points in the prior year, primarily due to a full year of Lexington and 11 months of Alcventra.

Into next year.

Matthew maybe if you could give us an update there.

Sure. Thank you, Brian and good morning.

I'll split it into three components, if you'll bear with me.

One is will discuss the first quarter guide our fiscal first quarter guide.

Second I will give a very preliminary recognizing how early we are for fiscal year 2024.

And then thirdly, I will provide an update on putnam, because obviously, putting them, we expect to become an important part about consol.

Consolidated guide if you will but I wanted to do that separately, because we don't know exactly when it's going to close so its speculative at this point, but I'll give you that information.

And I'm going to go through the individual components of the expense.

Matt Nichols: While continuing to invest in long-term growth initiatives, we also continue to strengthen the foundation of our business through disciplined expense management and operational efficiencies. Our adjusted operating expenses were 4.3 billion and increase of 3% from the prior year, again including a full year of Lexington and 11 months of Alcventra. Excluding performance fee related compensation and the full year impact of Lexington and Alcventra, adjusted operating expenses were down slightly from the prior year.

Issues that you focus on from a modeling perspective.

So firstly <unk>.

We expect her if ought to remain in the 39 basis point area excluding.

Thats fees.

Compensation and benefits. We expect again this is first quarter 'twenty for fiscal <unk> we.

We expect compensation and benefits to be $750 million, but please note that this includes $35 million.

Matt Nichols: This led to fiscal year adjusted operating income of 1.8 billion dollars. A decrease of 22% from the prior year, primarily due to lower average AUM, driven by market declines and to a lesser degree net outflows. Adjusted operating margin was 29.9%, compared to 35.9% in the prior year. Compared to the prior year, fiscal year adjusted net income declined 28% to 1.3 billion, and adjusted diluted earnings per share was 2.60 cents, a decline of 28%.

<unk> accelerated the comp charges.

It also assumes $50 million.

Performance fees.

I S. T. We guide to 125 million flat to the quarter. We just had occupancy we expect that to increase to $65 million from high fifties and the reason for this is that in New York City, we are transitioning to a more efficient and unified space. We have nine offices currently in.

New York City, and we are consolidating into one major office space in New York and for a period of about a year, we're going to have the equivalent of double rent on that office. So that means for the first quarter. This implies two months of this by the way, it's about an $8 million increase.

Matt Nichols: From a capital management perspective, after returning 870 million to shareholders through dividends and share repurchases, and funding the acquisition of Alcventra and other acquisition-related payments, we ended the year with 6.9 billion of cash investments. We will continue to prioritize Alcventra which has increased every year since 1982. Purchase shares to hedge our employee share grounds, and where applicable review targeted acquisitions to reach our objectives at an accelerated pace. In addition, as we begin in the fourth quarter, we plan to opportunistically repurchase shares above the employee-related equity issuances during fiscal year 2024.

And that 8 million with increased to $12 million of increase the occupancy for about a year. After the year is up that will be that will go away and it would normalize back down into the mid fifties again.

G&A, we expect to be in the $140 million area and this includes slightly higher TNA and flat placement fees.

In terms of our tax rate.

We expect that to be 24% to 26%.

Matt Nichols: Turning to the Putnam Transaction, which is Jenny mentioned remains on track to close in the fourth quarter of Canada 2023. Amongst other factors, the transaction is structured to maintain Franklin's Templeton's financial flexibility and promote our continuing investments in the business. It also protects our strong financial position in the context of challenging market conditions. Our current market levels, the acquisition of Putnam is expected to add total run rate adjusted and operating income of approximately 150 million after the first year post-closing.

Fiscal year.

24.

In terms of full year 'twenty four.

Overall expenses.

First of all note that as I mentioned in my prepared remarks that a.

Between our full year 'twenty three in full year 'twenty, two we were about 1% lower excluding performance fees and <unk>.

Various acquisitions that weren't included in the previous year.

Full year 'twenty four excluding Putnam.

Performance fees in the New York City real estate transition that I, just walked through we expect expenses to be approximately flat to perhaps slightly down, but I would I would model.

Matt Nichols: Consistent with an approximate 30% operating margin, inclusive of cost synergies, and we are ahead of schedule in terms of when we are likely to realize operating income post-close. Assuming this operating income contribution, the transaction is expected to be modestly accreted to adjusted EPS by the end of the first quarter after closing.

Flat at this point.

In terms of Putnam.

Putnam again is Jenny and I mentioned that in our prepared remarks, we expect partner to close.

In the calendar fourth quarter, and our fiscal first quarter were.

Unknown Executive: And now we would like to open the call-up to your questions. Thank you. If you'd like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question to you. If anyone should require a particular assistance during the call, please press star zero on your telephone keypad. We ask that you limit yourself to one initial question and one follow-up. One woman, please for your first question.

We're hoping for December one and so the guide that I'm about to provide to you does assume December one but that could end up slipping.

Into a into January one for example, but let's hope for December one.

If we close on December one from a revenue perspective, we expect to add about $50 million to revenue.

Around $42 million of that is expected to be in investment management fees and about $8 million of that is expected to be in services and you can run rate that by typing. It by 12 to come out with the annual number for modeling purposes.

Michael Cypress: Your first question comes from Michael Cypress from Morgan Stanley. Please go ahead. Great. Thank you. Good morning. Thanks for taking the question. Maybe you could just start out on the private market space. You guys continue to raise capital there. Maybe you could just update us on some of the progress across some of the key flagship funds, which strategies you think might be entering the market as you look out over the next 12 months.

We expect operating income addition, so the addition to operating income in the first quarter in other words for the one month to be between eight and $10 million for Putnam.

In the second fiscal quarter, we expect to add an incremental $25 million operating income and in both the third and fourth quarters.

Michael Cypress: And just on the private wealth channel, I think you mentioned 20% in terms of what you're looking expecting to raise. I mean, you could just talk about some of the traction that you're seeing in the private wealth channel in terms of fund placements and new products in my field to bring on the channel. Right.

We expect to add an incremental for both quarters $25 million to $30 million and operating income assuming of course that revenue remains approximately stable end markets.

Adam Spector: Adam's going to take this one. All right. Thank you, Jenny. We're seeing strength really across the board. I would say the folks, the place where we're seeing a lot of interest is like others is in the private debt area. They're particularly in the real estate related debt. We're seeing good growth. We've had a good year in our CLO business where out with special situations and new BSP flagships on that's all really good.

Stable to where they are.

Our current levels, we're still guiding as I mentioned, when we announced the transaction to add a total operating income of around $150 million run rate by the time, our fiscal year ends in 2024 in other words by 930. This is 10 months, obviously, assuming we close December one versus the.

12 months that we guided when we announced the.

Adam Spector: Outstentra is beginning to be integrated more into our distribution force. We're feeling really positive about that as well. Lexington is continuing their fund raise for for fun 10. And we're beginning to do some other things there. You mentioned Michael the 20% raise that will come from wealth management for Lexington. We're starting to see greater traction for wealth management. And alternatives across the board. We spent the year really building out our capabilities for US wealth management alternatives and we're now taking that model and using it in Europe in general.

Transaction. So the change here is not necessarily the $1 50 that we've talked about although we would put that at a minimum at this point based on current markets, but the change is when we expect to actually realize the operating income when we announced the transaction.

Described a scenario, where we would expect to achieve 25%.

On a run rate basis at.

At the time of close and then as you can see from the guide of $8 million to $10 million for the first month coming in operating income. This is not indicative of achieving over 50%, let's say between 50 and 60% of targeted operating income on a run rate basis by the end of month.

Adam Spector: One of the things we're seeing that's quite positive and wealth management. All is the fact that we're now getting on to calendars six months a year in advance. And once you're in that flow, we think the fundraising really will continue.

One so in the actual yeah just to be.

As clear as we can to help with the modeling in terms of the actual year, we expect to realize between 85 and $100 million of operating income.

And to have reached at least $150 million run rate by 930 24, all else remaining.

Unknown Executive: That's the the quick over. Thank you. Great. Thank you.

Unknown Executive: Just a follow-up question, maybe from Matt. I think at the release you mentioned the transfer agency functions globally have now been outsourced. You did that in the US. Now you took that around the world. I think also you've outsourced fund administration in the US.

Cool.

Okay.

And then.

And then the final comment sorry, sorry, Brad I want to make sure. It's as complete as possible. So everybody gets above right at the end. So what this means in terms of accretion dilution could.

Matt Nichols: Maybe you could just talk to, you know, what's next is you think about simplifying the business, enhancing efficiencies. What steps might be able to take over the next year or two? How meaningful might they be?

Because we talked about that too.

At the current time again, recognizing how volatile the markets are and so on but the current tug all else equal this would mean that transaction becomes accretive.

Matt Nichols: And just curious any sort of benefits or lessons learned and take away so you could speak to on the transfer agency outsourcing? Yeah, so you mentioned three key things there. One is the steps we've taken to outsource fund administration, transparency and aspects of our technology. What we've been working hard on over the last year also is what next in terms of our investment management platform in terms of technology. That includes both middle office back office functions. And I'd say that we're pretty deep into it and you can expect more updates from us throughout 2024.

Bye.

The second quarter.

So in a full quarter versus at the end.

First year that we talked about initially so we're we're pretty much becoming accretive in this transaction.

Right. After we close its like a couple of months afterwards, but let's say just to be conservative at the end of the first full quarter. After we close so that would be the end of our second fiscal quarter.

Got it I got my Money's worth on that question. Thank you Matt.

Alright.

Jenny Johnson: Well, and I would just add Mike, as you know, we've done a lot of acquisitions. And I think what one of the reasons they work well is we take our time on some of the integration. And so there's opportunity, obviously, we'll be integrating Putnam into our environment and even some of the like Mason Sims are, you know, have an opportunity to integrate, which we think will simplify the environment.

Okay.

Just one clarifying question so.

And you gave us the I think you kind of gave us that $150 million incremental run rate by 930, which kind of as a guiding sort of in north star, but I believe the work was like $8 million to $10 million.

First quarter, assuming ending December one so thats, just one month right, yes, yes mark.

And then next quarter.

Matt Nichols: Yeah, in terms of the financial impact, Mike, I would just caution you on that. These things take time as Jenny mentioned. There won't be any additional change in 2024 that's a step change in terms of our expense. There's a bit of expenses around the operation, but I think going into 25, 20, so longer term, not only do we have the opportunity to be more efficient across the organization bringing things closer together in an effective way, but also it's an opportunity to modernize, to reduce cap X, to make sure that longer term, we're in a position where we can scale at lower expenses with the right partners.

Means we are adding 25 onto that eight to 10, so getting the three five and then are those okay got it and those are quarterly not run rate.

Unknown Executive: Great. Thank you.

Correct. There are actual ads. So by the end of that period, we would have added $25 million at the end of the third and fourth quarters. We would have added another 25 to 30. So at the end of the fiscal year. We would have added up to about $100 million such real actually operating income additions not just run rated in the rehab. My then add about the reason why.

The $1 50 run rate is that that that could be achieved sort of an accelerated fashion right at the end of the last the last fiscal quarter.

Okay.

Perfect. That's that's really really helpful.

Craig Siegenthaler: Your next question comes from Craig Sigan Tyler from Bank of America. Please go ahead. Thanks.

Yes.

The only other one thing I'd add is that the because this is obviously a very important factor in the model as well as you think about overall.

Unknown Executive: Good morning, everyone. My question is on the the SMA business and I think you said yes one question, but maybe I could talk another one on the SMA within here, but what I'm looking for is more details around the components and the growth trajectory. So now that the Franklin income fund, which is one of your flagships is in the SMA wrapper, I'm just wondering are there other flagships at Franklin and its affiliates that would make sense also launching into an SMA wrapper.

For the Putnam.

Acquisition reduces is expected to reduce our <unk> by north 0.2 basis points.

They have a slightly lower if all of the us.

Got it.

And that is.

And when would the impact to the fr would that happened pretty much right away.

It's over the year, so I pretty much to.

Graduates comes in because it is.

It should be right away December yes.

The run rate impact Brian.

The run rate impact Brian.

Unknown Executive: And then kind of my two-parter was you're generating about 700 million of flows per quarter in the SMA wrapper. Do you think this is a level that could increase significantly from here? Yeah, so I mean you got to remember the SMAs exist and the reason you're taking off so much is that in the retail channel where the world went fee-based, it is difficult for a financial advisor who's client sees they're being charged every month for advice to buy and hold a mutual fund.

But the timing.

Because as you know we average.

AUM gets averaged over the over the period. It comes in so it's going to be a bit wonky in the first year, the first quarter sorry, but.

Alright, and soon you'll soon see the full impact of point to.

Got it at the 0.2 is the way we can think about it and then we can adjust for timing accordingly.

Actually that's a good way of putting it thank you.

Thank you very much.

Thank you.

Your next question comes from Alex Blaustein from Goldman Sachs. Please go ahead.

Unknown Executive: So if you can deliver the same kind of product in an SMA with the holdings, is basically on the statement that it looks like the advisors being much more active on that. And so, we view ourselves as being vehicle agnostic to how we deliver what is our expertise, which is our investment capability. And so, you know, you take, for example, the Franklin income fund. The Franklin income fund now is, we have an ETF version, an SMA version. And we're seeing growth. Both in both of those. So, any of our products can be delivered in SMA. Today, we have munis. Munis are actually have a good growth area in the SMA muni ladders.

Great well, thanks for that I think we could probably end the call right there.

[laughter].

I did want to ask you guys.

About fixed income, obviously and look western had some nice stabilization and investment performance early in the year.

But the latest moves in interest rates, putting incremental pressure on core and core plus both absolute and relative to the benchmark. So how are the conversations with clients I guess evolving.

You highlighted the opportunity to maybe rotate some of the cash on the sidelines.

To longer duration product.

Big of a headwind do you think that is and if more capital ultimately chooses to go back to passive vehicles within fixed income like we've seen this year House Franklin has a whole position to maybe take advantage of that opportunity and some of the fixed income reverse on the passive side.

Unknown Executive: And so, the way we are thinking about our businesses, I always say it's like a three-legged stool. It's product capability, global distribution, and vehicles. And the vehicles can be mutual funds, communal trust, ETFs, SMAs, things like Canvas direct indexing. And we should be flexible about how we deliver those in whatever market we're operating in. And I think that nobody has won the breadth of product capability that we have to the breadth of geographic distribution, both on the retail and institutes.

So interesting so first of all core is in positive flows and has remained in positive flows its core plus that's been more challenged.

We just came from we had our international.

Institutional client.

The conference last week and the bulk of the discussion is around is it time to move cash and go longer duration. So.

We're all sort of waiting for that moment, but we're certainly getting close to I think everybody agrees maybe there is one more increase of the fed maybe not.

But we're definitely near the end and then the question goes is it higher for longer or.

Unknown Executive: And while we may have been late to things like passive ETFs, we were early actually in the active ETF space. And so, being vehicle agnostic is very important. Now, the challenge is on SMAs is that you have to get approval at the gatekeeper level. And then you have to go out and train individual advisors. So, it's a bit like all in the complexity. But once you do that, then you just get consistent flows coming in.

Did things do things.

The grade quickly and rates get dropped so.

I think we're fortunate in that we have four independent fixed income teams that all actually have slightly different views.

And clients align with one of those views and.

That's the way, we look at managing the business and kind of the insurance policy around it which is.

To have comfort that we know that we can align something and the key is is it's been training our sales force to understand those nuances so that they can be out there and deliver the appropriate prada.

Unknown Executive: So, the long answer is basically we see any of our flagship funds as being able to be delivered through the SMA platform. And I just might add that emerging markets is another area where we're seeing significant SMA growth in addition to the communities that Jenny answered. And while a lot of the growth is an SMA having a product available like the income fund in an SMA in ETF, a mutual fund, a cross-border fund, seeing vehicle agnostic really lets us take broader access to different platforms. Thank you very much.

Product consistent with that client view and so yes. There are I mean, I think western is probably our top flowing sim as far as gross sales because there are a lot of clients that align with western view.

So we think we're well positioned when there sure theres going to be X percentage that do passive but there's plenty of them that believe in active fixed income I'm always one of those that skeptical when you the concept of doing capital allocation based on who's got more debt in the fixed income so passive fixed income as always.

Brennan Hawken: Your next question comes from Brennan Hawkins from UBS. Please go ahead. Good morning. Thanks for taking my questions. I'm curious about the expectations for expense growth into next year. Matthew, maybe if you could give us an update there. Sure. Thank you, Brennan. Good morning.

A question in my mind, but there are clients, who prefer that but there are plenty of clients, who prefer active fixed income and with our diverse Sims I think we're well positioned to capture that as money moves out of the out of cash into longer duration.

Adam do you want to add anything or.

Yes, I think you hit a lot of the key points Jenny.

Matt Nichols: So, I'll split it into three components, if you'll bear with me. One is we'll discuss the first quarter guide, our fiscal first quarter guide. Second, I'll give a very preliminary recognizing how early we are for fiscal year 2024. And in thirdly, I will provide an update on Putman because obviously Putman, we expect to become an important part of our consolidated guide. But I want to do that separately because we don't know exactly when it's going to close.

Western is having very good conversations with its clients. It continues to be Franklin Templeton top selling to them in terms of our gross flows.

And if you look at their performance, 88% of their market and composites have outperformed.

Over the one year period, and I think that number.

The 10 year period is something like 97%.

So yes in core plus and some other strategies they've had a tough go of it recently, but we see that turning around and we see.

Client interest there'll be very strong in western products.

Matt Nichols: So it's speculative at this point, but I'll give you that information, and I'm going to go to the individual components of the expense issues that you focus on from a modeling perspective. So firstly, EFR, we expect our EFR to remain in the 39 basis point area, excluding performance fees. Compensation and benefits, we expect, again this is first quarter 24 fiscal. We expect compensation benefits to be 750 million, but please note that this includes 35 million of accelerated third comp charges.

Great. Thanks, that's helpful. And then just one for you share repurchase is pretty strong in the quarter.

I think in your prepared remarks, you alluded to the idea that you might be a little bit more opportunistic. So I was hoping you could maybe flesh that out a little bit more as we think about capital return priorities for next year.

Sure. Thank you Alex.

I think the point the point, we tried to make on this is that obviously that the market is complicated.

It's fraught with uncertainty.

So we want to be careful how we describe this but obviously we've been very active in acquiring.

The company is to make sure we have the right set of investment capabilities to be as relevant as we possibly can for the most important.

Matt Nichols: This also assumes 50 million performance fees. IS&T, we guide to 125 million flat to the quarter we've just had. Occupancy we expect that to increase the 65 million from high fifties and the reason for this is that in New York City we are transitioning to a more efficient and unified space. We have nine offices currently in New York City and we're consolidating into one major office space in New York and for a period of about a year we're going to have the equivalent of double rent on that office.

<unk>.

Around the world in every asset class and every vehicle that Jenny mentioned.

<unk>.

We feel like we're pretty much done in that regard, there's one or two areas that we've referenced infrastructure for example, and in the private market tear of alternative assets and then maybe there's a few distribution things couple of technology things, but in terms of large scale transactions involving hundreds of millions in some cases billions of.

Matt Nichols: So that means for the first quarter this implies two months of this by the way. It's about an eight million dollar increase and that eight million will increase to 12 million of increase for your occupancy for about a year.

We feel like we're done in that regard.

For the foreseeable future never say never but we've got to fill out.

Done intensive strategic planning and therefore, I think you can expect us to move into more of a capital return mode.

Matt Nichols: After the year is up that will be, that will go away and it would normalize back down into the mid fifties again. GNA we expect to be in the 140 million dollar area and this includes slightly higher T&E and flat placement fees. In terms of our tax rate we expect that to be 24 to 26% for the fiscal year 24. In terms of full year 24 overall expenses I'll first all note that as I mentioned in my prepared remarks that between full year 23 and full year 22 we are about one percent lower excluding performance fees and the various acquisitions that weren't included in the previous year. Fully year 24 excluding Putnam performance fees and the New York City Riddestate transition that I just walked through we expect expenses to be approximately flat perhaps slightly down but I would model flat at this point.

Opportunistically. So what that means is we're going to absolutely protect our dividend as we've always described.

And you can expect the same sort of pattern that you've seen since 1919 eighties.

We're going to be very disciplined in buying back out.

And hedging our employee grants, but as you know we're left over with with a fair amount of.

Cash after that both in terms of earnings from earnings but also.

In terms of our balance sheet.

And look with our shares trading where they are it's a very good opportunity for us and as you know we've funded.

90% of Putnam transaction with shares and we'd like to repurchase those shares as soon as we can so we're going to be quite focused on that we don't want to give a schedule because the market's too uncertain in our opinion and we need to make sure that we are conservative and careful and methodical and all the rest of it that you expect from us but.

The pattern of share repurchase that you saw in this last quarter.

Again, I'm not saying it could be the same number but you can expect us to really focus on opportunistic share repurchases. In addition to the to the share employee growth, but for the reasons I've just outlined.

Matt Nichols: In terms of Putnam so Putnam again as Jenny and I mentioned that in our prepared remarks we expect Putnam to close in the calendar fourth quarter and in our fiscal first quarter. We're hoping for December one and so the guys that are about to provide to you does assume December one but that could end up slipping into January one for example but let's hope for December one. If we close on December one from a revenue perspective we expect to add about 50 million dollars to revenue.

Alright awesome. Thank you.

Thank you.

Your next question comes from Glenn Schorr from Evercore. Please go ahead.

Hi, Thanks, very much I'm not sure if it's for Adam for anybody, but so the new Dol rule proposal just came out I think this is a long time coming to focus is updating the definition of <unk>.

Matt Nichols: Around 42 million of that is expected to be in investment management fees and about 8 million of that is expected to be in services and you can run rate that by turning it by 12 to come up with the annual number for modeling, perhaps is. We expect operating income addition, so the addition to operating income in the first quarter, in other words, for the one month, to be between eight and ten million dollars for a partner.

What is the fiduciary and investment advice and given your distribution efforts and prowess and the channels. Just curious how you think it may or may not impact Franklin.

And the various products various channels.

Yes.

Glenn This is Ben.

<unk> discussed for quite a while and back and forth and.

No.

We are all in through the ICI have had opinions on it and our view is it's about education, it's about suitability of products.

Matt Nichols: In the second fiscal quarter, we expect to add an incremental 25 million operating income. And in both the third and fourth quarters for partner, we expect to add an incremental, for both quarters, 25 million to 30 million in operating income. Assuming, of course, that revenue remains approximately stable and markets are raised that's stable to where they are. Current levels were still guiding, as I mentioned, when we announced transaction, to add a total operating income of around 150 million run rate by the time our fiscal year ends in 2024, in other words, by 9.30.

And making sure that advisors are deploying the appropriate product for that client and.

We've always had the view that it's our job to make sure that we well inform our distribution partners and provide.

Parity around that and so I think our view is that this is not going to have a tremendous impact.

Good news.

Maybe one follow up.

Great that we're not quite at the finish line yet on Putnam, but as you get to know each other from.

Matt Nichols: This is ten months, obviously, assuming we close December 1, versus the 12 months that we guided when we announced the transaction. So the change here is not necessarily the 150 that we talked about, although we would put that at a minimum at this point based on current markets, but the change is when we expect to actually realize the operating income. When we announce transaction, I described a scenario where we would expect to achieve 25 percent on a run rate basis at the time of close.

From my look I think performance looks good and improving.

Their products, but as you've gotten closer together I'm curious what things you're learning what can you work on.

For their distribution reach in insurance and retirement.

Well I think I'll start and then Adam you can jump in I mean.

To be honest like one of the things that.

We are really excited about this platinum deal is that.

You're a traditional asset manager.

Who has a big book of mutual funds.

Area from a mutual funds tax disadvantage is it isn't an issue is in the retirement channel and so and Thats a way in which we.

Matt Nichols: And as you can see from the guide of eight to ten million for the first month, coming in operating income, this is now indicative of achieving over 50 percent, let's say, between 50 and 60 percent of targeted operating income on a run rate basis by the end of month one. So in the actual year, just to be as clear as we can be to help with the modeling, in terms of the actual year, we expect to realize between 85 and 100 million of operating income, and to have reached at least 150 million run rate by 9.30, 24, all else remaining equal.

I have always under punching our weight and so as we got into this.

Couldn't be more excited about combining what we've been putting an emphasis internally on retirement with their distribution capability. We've acquired a lot because as you could imagine empower was built out of Putnam and so really understanding that retirement channel.

Bringing these teams together and we think that's just going to make us much much better distribution partner, not just with empower but with firms like platforms like principal nationwide fidelity.

Matt Nichols: So in the final comment, sorry, I want to make sure this is complete as possible, so everybody gets the models right. At the end, so what this means in terms of accretion dilution, could we talk about that too, at the current time, again, recognizing how volatile the markets are and so on, but the current time, all else are in equal. This would mean the transaction becomes accretive by the second quarter. So in our full quarter versus at the end of the first year that we talked about initially, so we're pretty much becoming accretive in this transaction almost right after we close.

And being able to have an entry with our stable value in the target date funds. So.

We look at this and Couldnt be more excited about what we think is a great growth opportunity for us in a channel that just even when markets are volatile people still continued to contribute to their four one K through their paycheck.

Adam you want to add anything to that.

Yes, I would say that in some ways. It reminds me of the Legg Mason transaction when the two distribution forces were just so complementary and if you look at the way that Franklin has built out in the non U S market. As an example, I think that scale that really helps but if you look at what Franklin Templeton has in terms of SMA capability ETF.

Matt Nichols: It's like a couple of months afterwards, but let's say just to be conserved at the end of the first full quarter after we close, so that would be the end of our second fiscal quarter. Got it. I've got my money's worth on that question. Thank you, Matthew. Just one clarifying question. And you gave us the, I think you kind of gave us that 150 million incremental run rate by 9.30, which kind of is a guiding sort of a North star, but I believe the walk was like 8 to 10 million in the first quarter, assuming ending December months, that's just one month, right?

<unk> ability that along with the core Putnam's strategy is a real advantage and finally I would note that sub.

Subject to all of the.

Matt Nichols: Yeah, yeah, just one month. And then next quarter, that means we're adding 25 on to that 8 to 10, so getting the 35, you know, and then okay, and are those, okay, got it. And those are quarterly not run rate. Correct, they're actual ads. So by the end of that period, we would have added 25 million. And at the end of the third and fourth course, we would have added another 25 to 30.

Financial comments that Matthew made within those structured we will be able to add significantly to the sales force. So.

So we will have a bigger sales force a more effective sales force by bringing the two firms together that bigger sales force, we'll obviously have more product great Putnam product.

And so we're feeling that the transaction is really going to help propel us.

And I'll just add on the insurance side I actually think we gained insurance expertise at the acquisition of Western who has a tremendous penetration in the insurance channel, but what's exciting is now with the alternatives capabilities that we're adding we can take that expertise and just be a much more relevant partner and so.

As a great west looked at our capabilities and basically committed 25 billion. It was because it was a detailed bottoms up analysis of our various sims to determine what made sense for them in that.

Matt Nichols: So at the end of the fiscal year, we would have added up to about 100 million. So it's real actually, you know, operating income additions, not just rum rated. And the reason why I then add about the reason why I add the 150 rum rate is that that that could be achieved sort of an accelerated fashion right at the end of the last the last fiscal quarter. Okay, perfect. That's that's really, really helpful.

We wouldn't have been able to respond to that as well had we not had the expertise at western and we're building it within Franklin and then of course the.

That are born outfit that we did.

Press release, we had I think last week or the week before.

Matt Nichols: Yeah, the only other one thing I'd add is that the because this is obviously a very important factor in the model as well as you think about overall AUM and EFR, the Putnam acquisition reduces is expected to reduce out EFR by 0.2 basis points because I have a slightly lower EFR than us. All right. And that is, and when would the impact of the EFR would that happen pretty much right away?

Again it comes out of.

That combined Franklin in Western insurance ideas.

So we think there is.

More to come there as well.

Yeah.

Your next question comes from Dan Fannon from Jefferies. Please go ahead.

Thanks, Good morning, another clarification.

Matt Nichols: It's over the years. So yeah, I pretty much do it. The graduates comes in, but it should be right away in December. Yeah, the run rate and impact right away for the timing. Yeah, because as you know, we average the AUM gets averaged over the over the period it comes in. So it's going to be a bit wonky in the first year, the first quarter. Sorry, but right, we'll soon, you'll soon see the full impact of 0.2. Got it. But the point to is the way we can think about it and then we can adjust for timing accordingly. Exactly. That's good. We're putting it. Thank you. Thank you very much. Thank you.

Jason on expenses here, just Matt your comments on fiscal 'twenty, four being flat ex performance fees or just is that versus the reported number in fiscal 'twenty three or is that ex performance fee comp and other things as well.

X X performance fees and other costs. So you have to look at the two two adjusted numbers in that regard.

The number for 'twenty three.

So 23.

400, <unk> that $4 75.

And then.

Again, if you.

Full year 'twenty for us.

Alexander Blostein: Your next question comes from Alex Blostin from Goldman Sachs. Please go ahead. Great. Well, thanks for that.

Really right on that number.

Again, excluding excluding performance fees.

The real estate.

Unknown Executive: I think we could probably end the call right there. So I did want to ask you guys about fixed income. Obviously. And look, Western had some nice stabilization and investment performance early in the year. But you know, the latest moves and interest rates put in a commercial and core and core plus both absolute and relative to the benchmark. So how are the conversations with clients? I guess evolving. As you highlighted the opportunity to maybe rotate some of the cash on the sidelines to longer duration products.

Sure.

Issue that transition that I mentioned in New York, which is about that that that overall transition is about $50 million or something like that.

Okay, and then as a follow up just on alternatives.

It looks like gross sales where their lowest levels since.

Eight eight or so quarters and I'm curious if that's just more the environment timing around what's in the market with you guys. And then also just specifically what did clarian due in the quarter as well as if Lexington.

Unknown Executive: How big of a headwind. Do you think that is? And if more capital ultimately chooses to go back to passive vehicles within fixed income, like we've seen this year. How is Franklin as a whole position to maybe take advantage of that opportunity in some of the 16 conreppers on the passive side?

Appears doesn't have enough it hasn't had its final close and when do you think that might happen.

So Lexington final close will be in December so there.

Build on that.

Clarion has had improving redemption queues, but theyre still in I don't know Adam if you want to if you have the details on it.

Jenny Johnson: So interesting. So first of all, core is in positive flows and has remained in positive flows. It's core plus has been more challenged. You know, we just came from we had our international institutional client conference last week. And the bulk of the discussion is around, is it time to move cash and go longer duration? So, you know, we're all sort of waiting for that moment, but we're certainly getting close to it.

But we've had all.

Three strategies were positive.

For the quarter.

Yeah, and I think Jamie and there is a difference between the what we see in alternatives versus private market alternatives, because the private markets generally were a little stronger than alternatives overall as we saw some outflows in the liquid alt strategies.

Jenny Johnson: I think everybody agrees. Maybe there's one more increase of the Fed. Maybe not. But we're definitely near the end. And then the question goes, is it higher for longer or, you know, do things, do things degrade quickly and rage get dropped. So, you know, I think we're fortunate in that we have four independent fixed income teams that all actually have slightly different views and clients align with one of those views. And, you know, that's the way we look at managing the business and kind of the insurance policy around it, which is to have comfort that we know that we can align something.

And your next question comes from Ken Worthington from J P. Morgan. Please go ahead.

Hi, good morning, So I guess, beating the drum on expenses. So just when looking at adjusted comp for the quarter.

Was better than guidance when accounting for the bigger than expected performance fees.

Drove this was was there a lower payout on performance fees this quarter or was the core compensation number lower than your prior guidance and what sort of drove that.

Jenny Johnson: And the key is has been training our sales force to understand those nuances so that they can be out there and deliver the appropriate product consistent with that client's view. And so, yes, there are, I mean, I think Western is probably our top flowing sim as far as gross sales because there are a lot of clients that align with Western's view. So, and we think we're well positioned when they're sure there's going to be x percentage that do passive, but there's plenty of them that believe in active fixed income.

Yes, so obviously you've seen that.

The current markets Canada.

Resulted in just lower.

Variable compensation number one.

So it's a combination of <unk> revenue.

Less performance, our performance actually improved a little bit so, but just generally speaking.

That lowered the compensation.

Then we had.

The transaction related fee that we mentioned the bundle that has a higher margin associated with it so that also.

Jenny Johnson: I'm always one of those that skeptical when you the concept of doing capital allocation based on who's got more debt in the fixed income. So, passive fixed income is always a question in my mind, but there are clients who prefer that, but there are plenty of clients who prefer active fixed income. And, you know, with our diverse sims, I think we're well positioned to capture that as money moves out of the out of cash into longer duration.

Helped in that regard probably lower than you would expect so I'd say just.

A combination of just expense discipline around how we manage our compensation going into because remember this is out of year end. So.

We've made final adjustments based on where the current market as we expect the next quarter.

Adam Spector: Adam, do you want to add anything? Yeah, I think you hit a lot of the key points, Jenny. You know, Western is having very good conversations with its clients. It continues to be Franklin Templeton's top selling them in terms of our gross flows. And if you look at their performance, 88% of their market of composites without porn over the one year period. And I think that number the 10 year period is something like 97%. But we see that turning around and we see, you know, client interest will be very strong in Western products.

Okay fair enough I'm going to take a flyer for Citi in.

Unknown Executive: Great, thanks. It's helpful.

Your ETF business is doing well you have additional fund launches.

Seeing more active Etfs industry wide can you talk about per CDN to what extent is active ETF proliferation utilizing the presidium structure.

I think the market has kind of spoken on this topic, which is they want transparent active etfs and so.

That's been our area of focus.

And so we haven't we haven't really pursued anything there and I don't think theres a lot of growth there.

Fair enough. Thank you.

Unknown Executive: And then that's just one for you. Share repurchases pretty strong in the quarter. I think in your prepared remarks, you're alluded to the idea that you might be a little bit more opportunistic. So I was hoping you could maybe flush that out a little bit more as we think about capital return priorities for next year. Right, sure. Thank you, Alex. So I think the point, the point we're trying to make on this is that I'll see that the market's complicated.

Thanks Scott.

Your next question comes from Patrick Davitt from Autonomous Research. Please go ahead.

Hey, good morning, guys. Thanks for the question first of all I've been asked.

One quick follow up on Putnam could you give us an update on obviously, we can see the mutual funds, but could you give us an update on how the flows have tracked.

Unknown Executive: It's fraught with uncertainty. So we want to be careful how we describe this, but obviously we've been very active in acquiring companies to make sure we have the right set of investment, management capabilities to be as relevant as we possibly can to the most important clients around the world in every asset class and every vehicle that Jenny mentioned. We, we feel like we're pretty much done in that regard. There's, there's one or two areas that we've referenced, you know, infrastructure, for example, in, in the private market terrible alternative assets.

In the September quarter versus the last quarter, and maybe last year and this quarter. Thanks.

Unknown Executive: And then maybe there's a few distribution things, couple of technology things, but in terms of large scale, you know, transactions involving hundreds of millions in certain cases billions of dollars. We, we, we feel like we're, we're done in that regard for the foreseeable future. Never say never, but we've certainly felt like we're, we're done in terms of strategic planning. And therefore, I think you can expect us to move into more of a capital return mode opportunistically.

Yes, Patrick Dunne needs to be difficult anyway, but obviously, we don't own put them today. So we're not we can't really report that flows tube.

I would just say that they're a U N.

Is roughly where we announced the transaction. So I think when we announced the transaction we were around 136 billion and during that period of time.

Their performance has remained very strong.

And.

You know what's happened with the market between now and between then which was late May and now the market went up.

For about the so a couple of months then it came down quite hard.

And they're roughly where they are in the flow expectations, we had from them was to be.

Based on our strong performance to be in the.

Flattish area, let's say and.

I would say that.

The results are in line with what we expected.

Sorry, I can't give more specificity around it but oh no no.

Unknown Executive: So what that means is we're going to absolutely protect our dividends as we've always described. And you can expect the same sort of pattern that you've seen since 1990, you know, 1980s. We're going to be very disbanding buying back our, and hedging our employee grants. But as you know, you know, we're left over with with a fair amount of cash after that, both in terms of earnings from earnings, but also in terms of our balance sheet.

Yes.

And one quick follow up I know, it's early days, but could you frame the opportunity with the Venerable partnership you just announced any any kind of details you can give around the pool of AUM youll be open to the timeline for transitioning that AUM to the venerable branded funds et cetera.

Yes, I think we're not going to give again sorry.

Give too much detail on that but it's a multi staged.

Project with them, where we're going to be managing assets that we take on over a period of quarters.

Unknown Executive: And look, with our shares trading where they are, it's a very good opportunity for us. And as you know, we've, we've funded, you know, 90% of partner transaction with shares. And we'd like to repurchase those shares as soon as we can. So we're going to be quite focused on that. We don't want to give a schedule because the market's too uncertain in our opinion. And we need to make sure that we are conservative and careful and methodical and all the rest of it that you expect from us.

There is a.

Something that we've announced that came out quite recently and I think it's indicative of the way that we are able to work with insurance companies in general.

Build things, where they are able to more actively.

And efficiently hedge what's in their portfolio. So it was a customized solution that we built with them.

Unknown Executive: But the pattern of sharey purchase that you saw in this last quarter, you know, again, I'm not saying it's going to be the same number, but you can expect us to really focus on opportunistic sharey purchases in addition to the share employee grants for the reasons that I just outlawed.

And it's the type of approach, we're talking to some other insurance companies about right now.

And your next question comes from Brian Bedell from Deutsche Bank. Please go ahead.

Great. Thanks, Thanks, very much good morning.

Unknown Executive: Todd. All right, awesome.

Just one clarification.

Unknown Executive: Thank you.

On the <unk>.

The operating income guidance does that include the $25 billion investment.

Glenn Schorr: Your next question, come some Glenn Schorr from Evercore. Please go ahead. Hi, thanks very much. Not sure if it's for Adam for anybody, but so the new DOL rule proposal just came out. I think this is long time coming. The focus is updating the definition of what is it for the shared investment advice and giving your distribution efforts and prowess in the channels. Just curious how you think it may or may not impact Franklin in the virus, product virus channels.

From great West in that guide I guess is that is that investment.

Okay.

That concludes.

Alright.

Brian.

Okay.

Okay.

The answer is no.

You cut out the.

The $25 billion.

Got it.

Yeah.

It does.

Right.

Thanks, a lot.

Yes.

Glenn Schorr: Thanks. You know, you know, this, Glenn, this has been discussed for quite a while and back and forth. And, you know, we've all and through the ICI have had opinions on it. And, you know, our view is it's about education, it's about suitability of products and making sure that advisors are, you know, deploying the appropriate product for that client. And, you know, we've always had the view that it's our job to make sure that we well inform our distribution partners and provide, you know, transparency around that.

Insurance General account related.

And from Great West life.

We expect that to be incremental.

Bye.

That's cool.

Our second quarter.

That's kind of cool.

Okay.

And then.

Hello.

Okay.

Afterwards.

Okay.

Okay.

Yes, it may be our audio that's having an issue.

Jenny Johnson: And so I think our view is that this is is not going to have a tremendous impact. Good news. Maybe once follow up, I appreciate that we're not quite at the finish line yet on Putnam, but as you get to know each other, you know, from my look, I think performance looks good in improving in their products. But as you got closer together, I'm curious, what things you're learning, what can you work on for their distribution reach and insurance and retirement?

Brian did you hear that.

Response.

No we kind of got garbled up.

Okay, let's try again does this better.

Much better yes, okay, great. So no the guidance did not include the fees associated with the 25 billion dollar allocation.

That's largely from great great West life. So the fee rate is around the mid teens on the 25 billion. If you calculate the revenue on that.

Implementation timeline, we expect about half of that to come in.

Jenny Johnson: Well, I think I'll start and then Adam, you could jump in. I mean, you know, to be honest, like one of the things that we're really excited about this Putnam deal is that, you know, if you're a traditional asset manager who has a big book of mutual funds, you know, the area from a, where mutual funds tax disadvantage is an issue is in the retirement channel. And so and that's a way in which we, you know, have always underpunched our weight.

In the.

In the first calendar quarter of next year, well, let's let's call. It the first quarter. After we close and then the second half to come in over a period of a year.

One year perfect somewhere if it develops you keep here. We'll also keep you updated on that Brian Yeah. That's great and then just the last question just on.

Uh huh.

Private credit versus public credits, so you've got it on a different solutions across your specialist managers, including alternatives.

Jenny Johnson: And so as we got into this, we couldn't be more excited about combining what we've been putting an emphasis internally on retirement with their distribution capability. We've learned a lot because as you could imagine, Empower was built out of Putnam. And so really understanding that retirement channel, bringing these teams together. And we think that's just going to make us a much, much better distribution partner, not just with Empower, but with firms like platforms like principal, nationwide fidelity.

Maybe just to zero in on the wealth channel.

What are your thoughts about the timing of of.

This reallocation towards fixed income.

When that picks up and then maybe just thinking about it.

With your private credit offerings versus the.

The public side do you think one will.

Sort of went out over not went out over the other but one will be larger than the other.

And is that cadence if you have to think about it over the next two or three quarters is that sort of an equal cadence do you think or do you think.

Jenny Johnson: And being able to have an entry with our stable value in the target date funds. So, you know, we look at this and couldn't be more excited about what we think is a great growth opportunity for us in a channel that just even when markets are volatile, people still continue to contribute to their 401K through their paycheck. Adam, you want to add anything to that? Yeah. Yeah, I would say that in some ways it reminds me of the leg Mason transaction when the two distribution forces were just so complimentary.

Yes.

B.

Much larger swing into into the public fixed income funds given just your scale there.

I think this is.

Well first of all.

We know in talking to our large distribution partners that there's just a massive amount one of them commented that their most profitable area right. Now is there is that basically the money market fund because the massive amount of money sitting in cash on the sidelines. So.

Jenny Johnson: And if you look at the way that Franklin is built out in the non-US market as an example, I think that scale that really helps puttin. If you look at what Franklin Templeton has in terms of SMA capability, ETF capability, that along with the core Putnam strategies is a real advantage. And finally, I would note that subject to all of the financial comments that Matthew made within those strictures, we will be able to add significantly to the sales force.

Yeah.

Yeah.

The Wolfcamp channel is no different than the institutional channel and that <unk> likely to move first.

And then the wealth channel.

The challenge I think between traditional fixed income and private credit is that banks, just arent lending like they used to and so youre not even generating as much of the traditional fixed income as you used to.

And so in order to have the investable universe, youre going to probably see the wealth channel starting to move more into private credit anyway, but the reality is it is illiquid and I think this is where we are on the product development side thinking through creative solutions, where you actually have products that combine private.

Jenny Johnson: So we'll have a bigger sales force and more effective sales force by bringing the two firms together. That bigger sales force will obviously have more product, great button product. And so we're fulfilling that the transaction is really going to help propel us. And I'll just add on the insurance side, I actually think we gained insurance expertise at the acquisition of Western who has tremendous penetration in the insurance channel. But what's exciting is now with the alternatives capabilities that we're adding, we can take that expertise and just be a much more relevant partner.

Credit and traditional fixed income so you have a component of that.

Liquidity with the excess returns that are.

Generated in the private markets because of their illiquidity premium so it's.

Jenny Johnson: And so, you know, as a great West looked at our capabilities and, you know, basically committed 25 billion. It was because it was a detailed bottoms up analysis of our various Sims to determine, you know, what made sense for them. And that's why we wouldn't have been able to respond to that as well. Had we not had the expertise at Western and we were building it, you know, within Franklin. And then of course, the venerable announcement that we, the press release we had, I think last week or the week before, again, comes out of that combined Franklin and Western insurance ideas. So we think there's, you know, more to come there as well.

Just any alternatives in the wealth channel, it's complicated because you have the suitability and the Dol rule that was asked us.

Could it mean that the bar is even higher you can't make mistakes.

But from a.

Responsible.

Asset managers are trying to figure out how to provide these excess returns in that channel.

It's an area of great focus for us.

So again.

The banks are going to lead the way they used to lend the capital requirements.

I've made it tougher and tougher you see it in the numbers.

And we think that private credit is going to continue to grow.

Okay.

This concludes today's Q&A session I would now like to turn the call back over to Jenny Johnson Franklin President and CEO for final comments.

Unknown Executive: Here next question comes from Dan Fanon, Jeffries, please go ahead. Thanks.

Well I just want to thank everybody for participating in today's call and once again, we'd like to thank our employees for their hard work and dedication. It's also I'd also like to add that we look forward to welcoming the impressive team at Putnam to Franklin Templeton when the transaction closes and we look forward to speaking with you all again next quarter.

Dan Fannon: Good morning. Another clarification on expenses here. Just met your comments on fiscal 24 being flat ex performance fees. I just, is that versus the reported number in fiscal 23 or is that ex performance be confident? Other things in it. As well. It's ex performance fees and other comps. So you have to look at the two, two adjusted numbers in that regard. So it's, it's 23 number for 23. So 23, it'd be like 4.407.0 something like that, 4075.

Thank you.

Thank you. This concludes today's conference call you may now disconnect.

[music].

Dan Fannon: And then, you know, again, if you, the full year 24 is really right on that number. Again, excluding, excluding the performance fees and the real estate issue that I transition, I mentioned in New York, which is about that, that overall transitions about 50 million or something like that.

Matt Nichols: Okay. And then as a follow up, just on alternatives, it looks like gross sales where they're lowest levels since, you know, like eight or so quarters and curious if that's just more the environment, timing around what's in the market with you guys. And then also just specifically what did Clary on do in the quarter as well as if flexing 10. Yeah, the peers doesn't have it hasn't had its final close and when you think that might happen.

Matt Nichols: So, election since final close will be in December, so they're scheduled on that. Clary and has had improving redemption cues, but they're still, I don't know, Adam, if you want to, if you have the details on it. But we've had all three strategies were positive for the quarter. Yeah, and I think Jenny in there, there's a difference between the what we see in alternatives versus private market alternatives because the private markets generally were a little stronger than alternatives overall as we saw some outlook in the liquid all strategy.

Okay.

Sure.

Ken Worthington: and you next question comes from Ken Worthington from JP Morgan, please go ahead. Hi, good morning. So I guess beating the drama on expenses. So just when looking at adjusted comp for the quarter was better than guidance when accounting for the bigger than expected performance fees, what drove this? Was was there a lower pad on performance fees this quarter or was the core compensation number lower than your prior guidance and in what sort of drove that?

Ken Worthington: Yeah, so obviously you've seen the state that you know the current markets can you know resulted in just lower variable compensation number one. So that's a combination of AUM revenue less performance performance actually improved in a little bit. So but just generally speaking that lower compensation. Then we had the transaction related fee that we mentioned on bundle that has a higher margin associated with it. So that also helped in that regard that probably lower than the new expect.

Ken Worthington: So let's say just, you know, a combination of just expense discipline around how we manage our compensation going into. Remember, this is our year end, so we made final adjustments based on whether current market is expected next quarter.

Unknown Executive: Okay, fair enough. I'm going to take a flyer and prosidion. Your ETF business is doing well. You have additional fund launches. We're seeing more active ETFs industry wide. Can you talk about prosidion to what extent is active ETF proliferation utilizing the prosidion structure? Look, I think the market has kind of spoken on this topic, which is they want transparent active ETFs. And so that's that's been our area of focus. And so we haven't we haven't really pursued anything there and I don't think there's a lot of growth there.

Unknown Executive: Fair enough.

Unknown Executive: Thank you. There's good.

Patrick Bivitz: Hey, you're next question come some Patrick Bivitz from autonomous research. Please go ahead. Hey, good morning, guys. Thanks for the questions. Most of what I've been asked, one quick follow up on Putnam. Could you give us an update on obviously we can see the mutual funds, but could you give us an update on how the flows have tracked in the September quarter versus the last quarter and maybe last year in this quarter? Thanks.

Jenny Johnson: Yeah, Patrick, it don't mean to be difficult in any way, but obviously we don't own put them today, so we're not we can't really report their flows to you. I would just say though that their AUM is roughly where we announced the transactions. I think when we announced transaction, we were under 136 billion and during that period of time, they, you know, their performance has remained very strong. And you know, you know what's happened with the market between now and between then, which was late May and now the market went up for a month or so or a couple months, then it came down quite hard and they're roughly where they are.

Jenny Johnson: And the flow expectations we had from them was to be, you know, based on their strong performance to be, you know, in a flatter share area, let's say, and I'd say that their results are in line with what we expect.

Unknown Executive: Sorry, I can't give most best 50 around it, but I don't know them yet. One quick follow-up. I know it's early days, but could you frame the opportunity with the venerable partnership you just announced, any kind of details you can give around the pool of AUM? You'll be open to the timeline for transitioning that AUM to the venerable branded funds, etc. Yeah, I think we're not going to give, again, sorry, to not give too much detail on that, but it's a multi-stage project with them where we're going to be managing assets that we take on over a period of quarters.

Unknown Executive: There's something that we've announced that came out quite recently, and I think it's indicative of the way that we are able to work with insurance companies in general to build things where they are able to more actively and efficiently hedge what's in their portfolio. So, it was a customized solution that we built with them, and it's the type of approach we're talking to some other insurance companies about right now.

Brian Bedell: And your next question comes from Brian Bedell from Deutsche Bank, please go ahead. Great, thanks very much, good morning. Just one clarification on the Putnam operating income guidance. Is that include the 25 billion investment from Great West in that guidance? I guess is that investment half? Yeah, that's a good question. Brian, is there something special about that? The answer is no. The 25 billion dollars incremental. We guided the 25 billion dollars in terms of the key rates in the 18s, the last portion of that is insurance general account related to any one from Great West's life.

Brian Bedell: We expect that to be implemented by a 50% by a second quarter. Sorry, we're not second quarter, we're not second quarter. Second quarter. Yeah, it may be our audio that's having an issue. Did you try and did you hear the response? I kind of got garbled up. Let's try again. Does this better? Great, so no, the guidance did not include the fees associated with the 25 billion dollar allocation. That's larger from Great West's life, so the fee rate is around the mid teens on the 25 billion if you calculate the revenue on that in terms of implementation timeline.

Brian Bedell: We expect about half of that to come in the first calendar quarter next year. Well, let's call it the first quarter after we close. And then the second half to come in over a period of a year. Perfect. We'll also keep you updated on that, Brian. Yeah, that's great.

Jenny Johnson: And then just the last question, just on private credit versus public credit. So you've got a lot of different solutions across your specialist managers, including alternatives. Maybe just to zero in on the wealth channel. What are your thoughts about timing of this reallocation toward fixed income? When that picks up and then maybe just thinking about it with your private credit offerings versus the public side, do you think one will sort of win out over the, not win out over the other, but one will be larger than the other.

Jenny Johnson: And is that cadence, if you have to think about it over the next two or three quarters, is that sort of an equal cadence, you think? Or, or do you think, you know, there'll be a much larger swing into into the public 16 come funds given just your scale there. You know, I think this is a, well, first of all, we know in talking to our large distribution partners that there's just a massive amount, one of them commented that they're most profitable area right now is there is basically the money market fund because the massive amount of money sitting in cash on the sidelines.

Jenny Johnson: So, you know, the wealth channel is no different than the institutional channel in that the institutional channel is likely to move first. And then the wealth channel. The challenge, I think, between traditional fixed income and private credit is that banks just aren't lending like they used to and so you're not even generating as much of the traditional fixed income as you used to. And so in order to have the investment universe, you're going to probably see the wealth channel starting to move more into private credit anyway, but the reality is it is the liquid.

Jenny Johnson: And I think this is where we are on the product development side thinking through creative solutions where you actually have products that combine private credit and traditional fixed income. So, you have a component of liquidity with the excess returns that are, you know, generated in the private markets because of their liquidity premium. So, it's just as any alternatives is in the wealth channel, it's complicated because you have this suitability in the DOL rule that was asked is, you know, it's going to mean that the bars even higher or you can't make mistakes.

Jenny Johnson: But from a, you know, responsible asset manager trying to figure out how to provide these excess returns in that channel, it's an area of great focus for us. So, again, I, you know, the banks are going to lend the way they used to lend the capital requirements have made it tougher and tougher. You see it in the numbers and we think that private credit is, you know, going to continue to grow.

Jenny Johnson: This concludes today's Q&A session.

Jenny Johnson: I will now like to call back over to Jenny Johnson, Franklin's president and CEO for final comments. Well, I just want to, you know, thank everybody for participating in today's call. And once again, you know, we'd like to thank our employees for their hard work and dedication. It's also, I'd also like to add that, you know, we look forward to welcoming the impressive team at Putnam to Franklin Templeton when the transaction closes. And we look forward to speaking with you all again next quarter. Thank you. Thank you, this concludes today's conference call. You may not disconnect.